Rock Around the Block - The Blog of Rock LaManna

What happens when a family business loses its leader? No matter how well prepared your family is, you can expect a very rough road ahead. I’d like to introduce you to two tools – including “The Green Box” – that can help you through it.

A family business can “lose” its leader due to a variety of different events. Untimely death, disability, retirement, reassignment of job duties – the list goes on.

According to the LaManna Alliance’s Family Business expert Tom Hubler, the ability of the family to persevere depends on how well-connected you are. The family can expect a “temporary” chaos.

“Think about the solar system,” Hubler explains. “If you pulled one planet out, the whole system would go bonkers.”

That’s the scenario in a family. In a family business, the issues become even more complex, as family emotional and financial issues need to be considered. Toward the end of this post, I’ll share two tools that can help you through this difficult transition.

First, let’s look at some examples of how other family businesses have survived the loss of their leader.

A Tale of Two Families

In the first example Tom shared with me, the owner and driving force behind a family business died. It was a tremendous loss, and the family and community grieved his passing.

When he was alive, the father, like all entrepreneurs, believed he was more than capable of handling affairs on his own. Yet he understood that eventually, there would be a time when he would no longer sit at the helm of the business, so he created an advisory board.

With the advisory board providing guidance, the owner’s son took over the business and grew to become a great leader. Even though the family was emotionally distraught after the death, the business continued to grow.

The business was fortunate the father had planned for his inevitable passing. In many cases, owners aren’t willing to confront life’s harshest reality

Take Hubler’s second example. A family owner and his sons were almost conspiratorial in their avoidance of the inevitable. When their father died, instead of grieving his loss, their emotions manifested in competition for the father’s role.

Fortunately, the sons are now trying to work through the rift that resulted.

The key, Hubler says, is for the owner to try and create an advisory board for the transition period. Keep in mind that you’ll never be able to replace an entrepreneur, which is why you move from a person to a system.

For the family, you need – and this will sound strange – to embrace the grief. Hubler recalls the movie “Zorba the Greek,” in which the protagonist embraces the pitfalls life has to offer. When asked if he is married, for example, Zorba answers, “Am I not a man? I have a wife, the kids, the house – the full catastrophe.”

Embracing the loss, instead of trying to deny it, will be critical for the family business to continue.

But let’s get to even more specific tools and tactics to be used in a transition. Namely, the Green Box and Inside-Out Succession Planning.

The Green Box Exercise

Tom shared the following Green Box Exercise with me. Follow it, and you could save your family and your business an incredible amount of stress and hardship:

Jim McArthur was a Vistage Australia member. His father John was also a Vistage member. John called his son Jim to let him know that he’d be flying to New Zealand the following day to try to close an important business deal. Jim, a pilot in the Air Guard Reserves, warned his father that potential Typhoons could make travel hazardous. John laughed and reminded Jim that if anything tragic happened, to remember to get the “Green Box” out of the closet in his bedroom.

The next day, John was killed when his plane crashed into the side of a mountain on the north island in very low visibility. Several days after the funeral, he remembered his father’s words about the Green Box. He called his mother and they brought the Green Box to the family attorney. Inside, they found 28 envelopes. Here are the labels on the envelopes:

Letter to my wife

Letter to each child (3)

Letter to the employees

Letter to my mother / father

List of most important 5 employees in the company & their strengths/weaknesses

Off balance sheet deals

Organizational chart

Details of any company trusts

List of personal and business people that should be contacted in the event of passing

Deals in process and evaluation of them

Strategy that I am thinking of but haven’t told anybody about

List of trusted advisors and their roles (may or may not be currently working with company) such as attorney, accountant, etc.

The Exercise. Take 20 minutes and address one or two letters. Preferably one personal and one business. Feel free to share this with the group, or not. Remember that this will be the start of your Green Box, and people will read this at the time of your death.

The Inside-Out Succession Plan Model

Another invaluable tool to ease the transition is the Inside-Out Succession Plan Model. I’ve included a graphic here.

In this model, the center of the circle is called the “purpose.” It’s the reason you take action. For the next ring you see what motivates an entrepreneur: economic security, good health, family unity and the owner’s legacy. On the outer ring, you see the plans that ensure those desired outcomes actually occur.

Hubler notes that these tools can yield exceptional results, but nothing happens until the owner of the family decide to initiate a transition. Sure, a child may request action, a spouse may demand it, but it’s only the owner who can truly make it happen.

No one wants to think about death. But personally, I find it more disturbing to think about the consequences of not thinking about it. I may not be here, but I will do everything in my power to ensure my family and my business will live on.

When my father died quite suddenly in 1978 I was left with a company that was on the edge if real financial problems. We had no organization, poor financial controls and reporting, etc. It was all left up to me to turn this company around. If I had a board of advisors it would have been a lot easier. I was mentored by our company lawyer. He was also my father's best friend. He was a very savvy guy and very helpful. But it was me who had to totally reposition the company, create a management team and create a stategy to succeed against some very tough competition. I survived quite successfully with a great management team to support me as well as a very good bank. The OPM program was extremely helpful to me. It gave me knowledge and perspective on how to run the business as well as dealing and managing people. I bought out all the stockholders (family members) and ultimately sold the business in 1992. Armed with all of the knowledge and experience I went on to get involved in several other businesses. Some successful some not so successful. But it was a great deal of fun.

When my father died quite suddenly in 1978 I was left with a company that was on the edge if real financial problems. We had no organization, poor financial controls and reporting, etc. It was all left up to me to turn this company around. If I had a board of advisors it would have been a lot easier. I was mentored by our company lawyer. He was also my father's best friend. He was a very savvy guy and very helpful. But it was me who had to totally reposition the company, create a management team and create a stategy to succeed against some very tough competition. I survived quite successfully with a great management team to support me as well as a very good bank. The OPM program was extremely helpful to me. It gave me knowledge and perspective on how to run the business as well as dealing and managing people. I bought out all the stockholders (family members) and ultimately sold the business in 1992. Armed with all of the knowledge and experience I went on to get involved in several other businesses. Some successful some not so successful. But it was a great deal of fun.

Rock LaManna

Jeffrey, wonderful story of leadership and commitment. Thank you for sharing with us.

Rock LaManna

Jeffrey, wonderful story of leadership and commitment. Thank you for sharing with us.

Rock LaManna

Jeffrey, wonderful story of leadership and commitment. Thank you for sharing with us.